Lee, MA
March 5, 2015

Wave Systems Corp. (NASDAQ: WAVX), an enterprise security software provider, today reported fourth quarter (Q4 ’14) and full-year results for the period ended December 31, 2014. Wave will host a live webcast http://www.wave.com/resource-center/webcasts and conference call (212-231-2919) today at 4:30 p.m. ET to review its Q4 and full-year results and progress to date in 2015.

Q4 Financial Highlights

  • Wave’s Q4 ’14 total net revenues were $2.9 million for Q4 ’14, a year-over-year decline from $5.6 million in the fourth quarter ended December 31, 2013 (Q4 ’13) and quarter-over-quarter decline from $4.3 million in the third quarter ended September 30, 2014 (Q3 ’14).  The decline in year-over-year net revenues from Q4 ’13 included a decrease in licensing and maintenance net revenues of $2.7 million ($2.3 million of which was due to a decrease in OEM software bundling revenue, resulting primarily from a decline in shipments of Wave’s solutions under its OEM bundling relationship with Dell).
     
  • The $1.4 million decline in total quarter-over-quarter net revenues from Q3 ’14 consisted of a decrease in licensing and maintenance net revenues of $1.1 million, consisting of a $0.7 million decrease in OEM software bundling revenue and a $0.4 million decrease in enterprise license and maintenance revenue, and a decrease of $0.3 million in services revenue earned from a service contract with an OEM partner that was completed during Q3 ’14.
     
  • Q4 ’14 total operating expenses declined to $7.2 million versus $9.2 million in Q4 ’13.  Q3 ’14 total operating expenses were $6.4 million.  During 2014, Wave instituted further cost cutting measures to align with the current business which resulted in decreases from 2013 expenses.
     
  • On October 15, 2014, Wave entered into an Asset Purchase Agreement with DocMagic, Inc. to sell eSignSystems, a product line of Wave, to DocMagic, Inc. for $1.2 million.  The transaction closed on October 16, 2014 resulting in a gain on the sale of $1.3 million
     
  • Wave’s Q4 ’14 net loss was $3.7 million, or ($0.08) per basic share, compared to a net loss of $3.7 million, or ($0.11) per basic share in Q4 ’13, and a net loss of $2.1 million, or ($0.05) per basic share, in Q3 ’14.
     
  • Q4 ’14 total billings declined to $2.9 million quarter-over-quarter versus Q4 ‘13 total billings of $5.4 million. Q3 ’14 total billings were $3.4 million. The year-over-year decline was due to a $0.5 million decrease in licensing and maintenance billings and a $2.0 million decrease in OEM billings, principally due to a decrease in Dell-related OEM bundling activity.
     
  • The $0.5 million decline in total quarter-over-quarter billings from Q3 ’14 consisted of an increase in licensing and maintenance net revenues of $0.3 million and a decrease of $0.8 million in OEM software bundling revenue.

Full Year 2014 Financial Highlights

  • Wave’s total net revenues for 2014 declined to $17.0 million versus $24.4 million in 2013.  The decline in total net revenues from 2013 consisted of a $4.5 million decrease from a decline in the Dell OEM software bundling revenue as described above, a $1.5 million decrease as a result of a service contract with the United States Department of Defense that was completed during 2013 and a $0.9 million decline in consulting revenue from one of the world’s leading international oil and gas companies.
     
  • 2014 total operating expenses declined to $30.4 million versus $44.5 million in 2013. 2013 total operating expenses included $4.2 million of impairment charges.
     
  • Wave’s 2014 net loss was $12.9 million or ($0.30) per basic share, compared to a net loss of $20.3 million, or ($0.68) per basic share in 2013.
     
  • 2014 total billings declined to $14.8 million versus 2013 billings of $24.3 million.  The decline was primarily due to a $4.5 million decline in the Dell OEM software bundling revenue, a $2.5 million decrease in licensing and maintenance billings, a $1.5 million decrease as a result of a service contract with the United States Department of Defense that was completed during 2013 and a $0.9 million decline in consulting from one of the world’s leading international oil and gas companies.

Working Capital

  • Cash and cash equivalents were $1.8 million at December 31, 2014 compared to $2.1 million at December 31, 2013. Wave’s total current assets were $4.0 million at December 31, 2014 and total current liabilities were $9.0 million, including $5.1 million in deferred revenue.
     
  • Subsequent to December 31, 2014, Wave received net proceeds of $3.3 million through a registered direct placement of common stock priced at $0.65 per share and warrants priced at $0.70 per share.

CEO Commentary:

Highlights

  • In 2014 Wave focused on objectives to improve the financial performance of the company by implementing sound strategies for significantly cutting expenses while making fundamental changes that will enable sales growth.
  • Made significant changes in senior and mid-level executives including a new Chief Financial Officer, leading to a positive change in company culture as well as improvements on business execution.
  • Added two new members to the Board of Directors and executed a transition in the Chairman position after the passing of John Bagalay Jr.
  • Implemented major changes in the sales and marketing teams to focus on large enterprise sales.
  • Changed the entire North American sales force and the leadership of the EMEA sales team.
  • Launched Virtual Smart Card 2.0, a bold new product that better enables us to sell our TPM management software, where Wave has significant market differentiation and profit potential.
  • Made substantial and needed changes in 2014 that will enable increased enterprise sales and OEM royalties in 2015 and beyond.

Recent Corporate Developments:

 

For more information please contact:

Wave Contact:
Wave Systems Corp.
Walter A. Shephard, CFO
413-243-1600
investors@wave.com

Investor Relations:
David Collins, Chris Eddy
Catalyst Global LLC
212-924-9800 office
wavx@catalyst-ir.com

 

WAVE SYSTEMS CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)

 

Three months ended

 

Twelve months ended

 

December 31, 2014

 

December 31, 2013

 

December 31, 2014

 

December 31, 2013

Net revenues:

 

 

 

 

 

 

 

    Licensing and maintenance

$2,866,371

 

$5,613,559   

 

$16,670,834  

 

$22,591,914  

    Services

-

 

-

 

300,000

 

1,808,938

Total net revenues

2,866,371

 

5,613,559

 

16,970,834

 

24,400,852

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

   Licensing and maintenance – cost of                                  net revenues

303,601

 

313,310

 

1,215,776

 

3,419,271

Services – cost of net revenues

-

 

-

 

73,000

 

277,665

   Selling, general, and administrative

4,204,513

 

6,786,112

 

18,794,273

 

26,829,636

   Research and development

2,725,249

 

2,125,794

 

10,333,607

 

11,380,258

   Impairment of goodwill

-

 

-

 

-

 

2,590,000

   Total operating expenses

7,233,363

 

9,225,216

 

30,416,656

 

44,496,830

   Operating loss

(4,366,992)

 

(3,611,657)

 

(13,445,822)

 

(20,095,978)

Other income (expense), net:

 

 

 

 

 

 

 

   Net currency transaction loss

(6,966)

 

(4,862)

 

(14,828)

 

(17,220)

   Gain on sale of eSign

1,304,579

 

-

 

1,304,579

 

-

   Net interest expense

(604,325)

 

(49,260)

 

           (712,527)

 

           (200,456)

Total other income (expense), net

693,288

 

(54,122)

 

577,224

 

(217,676)

Loss before income tax expense

        (3,673,704)

 

(3,665,779)

 

(12,868,598)

 

(20,313,654)

Income tax expense

12,000

 

10,610

 

12,000

 

10,610

Net loss

$(3,685,704)

 

$(3,676,389)

 

$(12,880,598)

 

$(20,324,264)

 

 

 

 

 

 

 

 

Loss per common share – basic and diluted

$(0.08)       

 

$(0.11)       

 

 $(0.30)        

 

 $(0.68)        

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding during the period

45,918,494

 

33,436,124

 

43,024,449

 

29,825,854

 

 

 

 

 

 

 

 

 

WAVE SYSTEMS CORP. AND SUBSIDIARIES
Consolidated Supplemental Schedules
(Unaudited)

 

Three months ended

 

Twelve months ended

 

December 31, 2014

 

December 31, 2013

 

December 31, 2014

 

December 31, 2013

               

Total net revenues

$2,866,371

 

$5,613,559

 

$16,970,834

 

$24,400,852

Increase (decrease) in deferred revenue

57,471

 

(190,072)

 

 (2,142,970)

 

(76,791)

 

 

 

 

 

 

 

 

Total billings (Non-GAAP)

$2,923,842

 

$5,423,487

 

$14,827,864

 

$24,324,061

Net loss as reported

$(3,685,704)

 

$(3,676,389)

 

$(12,880,598)

 

$(20,324,264)

Net interest expense

604,325

 

49,260

 

712,527

 

200,456

Income tax expense

12,000

 

10,610

 

12,000

 

10,610

Depreciation and amortization

208,340

 

246,036

 

885,657

 

1,009,876

Share-based compensation expense

(93,933)

 

75,727

 

209,961

 

1,694,842

Impairment of goodwill and  amortizable intangible assets

-

 

-

 

-

 

4,205,000

 

 

 

 

 

 

 

 

EBITDAS (Non-GAAP)

$(2,954,972)

 

$(3,294,756)

 

$(11,060,453)

 

$(13,203,480)

 

Non-GAAP Financial Measures:

As supplemental information, we provide the non-GAAP performance measures that we refer to as total billings and EBITDAS.  Total billings is provided in addition to, but not as a substitute for, GAAP total net revenues.  Total billings means the sum of total net revenues determined in accordance with GAAP, plus the increase or minus the decrease in deferred revenue.  We consider total billings an important measure of our financial performance, as we believe it best represents the continued increase in our software license upgrades.  Total billings is not a measure of financial performance under GAAP and, as calculated by us, may not be consistent with computations of total billings by other companies.   For the three months ended September 30, 2014, total billings were $3,373,273 and consisted of total net revenues of $4,332,104 adjusted for a decrease in deferred revenue of $958,831.

EBITDAS is defined as net income (loss) before interest income (expense), income taxes, depreciation, amortization and share-based compensation.  EBITDAS should not be construed as a substitute for net income (loss) or net cash provided by (used in) operating activities (all as determined in accordance with GAAP) for the purpose of analyzing our operating performance, financial position and cash flows, as EBITDAS is not defined by GAAP.  However, we regard EBITDAS as a complement to net income (loss) and other GAAP financial performance measures, including an indirect measure of operating cash flow.  For the three months ended September 30, 2014, negative EBITDAS was $(2,414,066) and consisted of net loss as reported of $(2,105,859) adjusted for net interest expense of $24,325, depreciation and amortization of $215,418 and share-based compensation expense of $(547,950).

 

WAVE SYSTEMS CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)

 

 

 

December 31,

 

December 31,

 

2014

 

2013

Assets

 

 

 

Current assets:

 

 

 

  Cash and cash equivalents

$1,777,414

 

$2,120,102

  Accounts receivable, net of allowance for doubtful accounts of $-0-

 

 

 

       December 31, 2014 and December 31, 2013

1,820,945

 

2,730,077

  Pledged receivables

-

 

1,683,188

  Prepaid expenses and other current assets

397,689

 

488,656

      Total current assets

3,996,048

 

7,022,023

  Property and equipment, net

411,755

 

596,820

  Amortizable intangible assets, net

2,008,227

 

2,590,920

  Goodwill

1,448,000

 

1,448,000

  Other assets

169,330

 

167,146

Total Assets

8,033,360

 

11,824,909

 

 

 

 

Liabilities and Stockholders' Deficit

 

 

 

Current liabilities:

 

 

 

  Secured borrowings

-

 

1,430,710

  Accounts payable and accrued expenses

3,918,493

 

6,789,274

  Deferred revenue

5,125,932

 

6,996,239

      Total current liabilities

9,044,425

 

15,216,223

  Other long-term liabilities

50,779

 

78,618

  Royalty liability

4,982,306

 

4,509,629

  Long-term deferred revenue

871,677

 

1,003,614

Total liabilities

14,949,187

 

20,808,084

 

 

 

 

Stockholders’ Deficit:

 

 

 

Common stock, $.01 par value.  Authorized 150,000,000 shares as Class A; 

 45,962,324 shares issued and outstanding at December 31, 2014 and 35,019,740 at December 31, 2013

459,623

 

350,197

Common stock, $.01 par value.  Authorized 13,000,000 shares as Class B; 8,885 shares issued and outstanding at December 31, 2014 and 2013

89

 

89

Capital in excess of par value

422,745,539

 

407,907,019

Accumulated deficit

(430,121,078)

 

(417,240,480)

Total Stockholders' Deficit

(6,915,827)

 

 (8,983,175)

Total Liabilities and Stockholders’ Deficit

$8,033,360

 

$11,824,909